Calgary Office Market Gets Crushed. Oil, China Blamed
The office vacancy rate in downtown Calgary, the epicenter of the Canadian oil bust, could hit the vertigo-inducing level of 17.5% by the end of 2018, a new report by commercial real-estate firm Colliers International warned – and added some ominous clouds: “Given the current global macro environment, this may even be an optimistic forecast.”
While real estate is supposedly local, it’s not. It has been, like so many things, globalized. Colliers:
The geopolitical turmoil in China, Greece, and Iran must be taken into consideration, as the global instability is already affecting local top-level decisions and investor sentiment.
The biggest problems are cropping up in the sublease sector, according to the Calgary Herald, citing Colliers’ report. Sublease availability began to balloon in late 2014. The oil bust was hitting hard. Canada’s tar-sands operations are particularly at risk since they’re the world’s high-cost producers; they’re sitting ducks in an oversupplied market where an all-out fight over market share has broken out.
So, according to the report, “international energy companies began reallocating capital to other parts of the world.” Local operators, to stay alive a little longer, tried to slash operating expenses and conserve cash where they could. Layoffs and consolidations followed. A lot of people in the oil business are contractors; and their hours were getting cut. And companies began shedding by then useless office space.
But there have been few takers.
By the end of June, available sublease office space in downtown Calgary, after soaring for three quarters in a row, hit an all-time record of 2.6 million square feet. At 52% of all available office lease space, sublease space exceeded headlease space for the first time since Q4 2009, during the Financial Crisis. That’s a bad sign.
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